Thank you (John Hutton/Michael Clarke) for your very kind introduction. Can I say what a pleasure it is to be here again and to have this opportunity to address the institute. It is an opportunity which is now an established part of pre-Christmas tradition and is one which, I increasingly feel, generates a certain amount of eager expectation.

That expectation is of a lecture, or more properly a talk, that will be something of a cocktail. One part reflection; one part a forward look. Some might hope for a dash of controversy or at least a twist of the provocative. I prefer to stick to the safety of honest reporting in the hope that that alone, if rigorously done, can gust towards the seminal.

It is sobering to think how much has happened in the 12 months since I gave this talk last year and, equally therefore, quite what might occur in the next twelve months before, hopefully, I give the next such talk.

Who would have thought, 12 months ago, that we would today have more armed servicemen and women in Sierra Leone fighting Ebola that we would in Afghanistan? Who would have predicted the Russian annexation of Crimea; and a Nato Summit that committed to a defence investment pledge and a readiness action plan to significantly enhance Nato’s deterrent posture? Who would have predicted the sudden emergence of ISIL?

Who could today look at the world and sensibly counter the claim that it is not really turning out as we had thought or hoped; and that it seems an even less stable, more uncertain and increasingly dangerous place to live?

And, looking forward 12 months, in the context of a General Election, a strategic defence and security review and of the significant residual fiscal challenges which we all recognise face the government, who could with confidence predict whether we, as a nation, will feel more or less safe in this world?

And, in many respects, the answer to that question, in 12 months time are we going to feel more or less safe, is the subject of this talk. And, what I hope I will be able to convince you is that, achieving a condition of greater national security is entirely feasible, if, but only if, we make the right decisions over the next 12 months.

But, if I am going to stand any chance of convincing you, I think I am going to have to achieve 3 things:

the first, is to be brutally honest about the very challenging legacy of the last 10 years or so of British involvement in Iraq and Afghanistan and explain why we all need to move on

the second, is to convince you of the significant extent to which, under this government, defence has been able to preserve options. Options as to how, in the future, the armed forces are structured and employed to mitigate security risks. Because preserving options on how to stay safe is one of our principal tasks.

and third, is to indicate those big issues and decisions we need to take next year which will influence our ability to preserve our security and our international status

And so my talk is structured to address those three issues. But, and at the risk of repetition, I start from the firm belief that the world is becoming a more dangerous, less certain, less predictable, more unstable place. And for those who would wish away the reality of such a world I would point to the single issue that, to me, links current instability. Wherever you look: Russia, Iran, Palestine, much of the Muslim world: there is a strong and deeply emotive sense of denial, a denial of both historic entitlement and future prospects. And that emotion is now challenging the world order that we have become comfortably used to, and that we try to maintain. So, as I said last year, the grand strategic security challenge of the age is not how to fight to maintain the status quo; but how do we accommodate change whilst maintaining stability. That challenge is not going away. And the role of defence is to mitigate the security risks which derive from this situation.

So, part one. My personal view is that, rightly or wrongly, the legacy of the conflicts in Iraq and Afghanistan have been, and still are, hugely challenging. They have affected some people’s perception of the beneficial utility of armed force, of the competence of defence and the wisdom of past government. Let me expand on this a bit more.

The first thing I would say is that it seems to some people that the use of our armed forces has, in certain respects, actually been detrimental to our national security. Some people worry that far from making the streets of Britain safer, they have become more dangerous streets to walk. I would contest this, but it is, if not the prevailing at least a salient view.

Secondly, the active or operational use of our armed forces in Iraq and Afghanistan has blinded some people to the wider utility of our armed forces, which, in many respects, exist not to fight conflicts, but rather to preserve peace and stability, albeit through the credible threat of the use of force, through the mechanism we call deterrence.

Third, we have created a situation in which, to varying degrees, government, parliament and society have become more cautious, nervous, anxious about the employment of military force. As I hinted in this speech last year, I worry that as a nation we could have started to lose some of our courageous instinct: the instinct to take risk and to make sacrifice both for our own security and the common good.

Certainly, the understandable demonstrations of national grief which for a decade have attended the homecoming of our dead, have represented a significant challenge to our resilience as a nation, and our ability to sustain military operations, especially operations which are seen by some as discretionary to national security.

And, perhaps finally, in this particular year: when we have commemorated the one-hundredth anniversary of the outbreak of the First World War; when we have brought combat operations in Afghanistan to a close; when we have seen remembrance on an almost unprecedented national scale; and when we have seen remarkable levels of charitable donations to our wounded and our veterans; I worry that, to some, our armed forces are as much the recipients of society’s sympathy as they are society’s considered support.

So that is why I worry that the legacy of the last decade, or so, is such a challenging one and that we now need to move on. We need to make society more knowledgeable of the true utility of armed forces. That our defining purpose is not to fight wars, but to avoid them having to be fought.

But this involves a complex interplay of factors. Defence exists to counter, to deter or to ameliorate the threats and challenges to our way of life, our open society, our freedom. It does so through a mixture of active protection, persistent deterrence and agile response. And that deterrence rests on the credibility that the nation, its government, its people and its armed forces, have the determination and capability to prevail if called upon to fight.

Let me move on to part 2. What I want to do, as we approach the final months of this Parliament, is to convince you that, contrary to much public commentary, the defence budget has enjoyed relative protection over the past 4 years, such that defence retains significant options as to how, in the future, the armed forces can be equipped, structured and employed to mitigate the security risks which I outline.

Now, what I am not going to do is to spin the unbelievable. I am not going to suggest that the last 4 years have been easy. Indeed, in many respects they have been immensely challenging. We have had to reduce force structure, we have had to gap capabilities, we have had to contribute to fiscal consolidation, all whilst fighting a war, meeting standing commitments and transforming defence.

But, the defence pundits have to recognise that we remain the world’s fifth biggest defence spender. We are the biggest defence spender in the European Union. We are second only to the United States in Nato. And we are one of the very few countries in Nato that currently remain above the defence investment pledge target of 2% GDP. And I would argue strongly that we emerge from the last decade, resilient, relevant and amongst the most professionally hardened of any armed forces.

In capability terms we are in the process of delivering a force structure, Force Structure 2020, which will:

and will have re-capitalised much of its inventory with equipment of greater technological edge

We will still retain balanced capabilities across all environments which will be increasingly relevant to our best assessments of what the character of future conflict might be like if we have to fight.

Included in this is an increase in the capabilities we have for Special Forces’ operations and cyber defence and offence.

We have also increased the investment in command and control; and intelligence, surveillance and reconnaissance capability: including bringing into service a range of unmanned air platforms; and establishing a world class all source national intelligence fusion centre.

Importantly we have addressed the dangerous drift towards the extinction of our reserve forces. And to me this is both a military and societal correction we should welcome not seek, as some would do, to undermine.

We have re-capitalised the air transport fleet; improved our holdings of battlefield helicopters; invested in the army’s new mobility requirements through the Scout programme; and the government has announced our intention to operate both aircraft carriers, such that one is continuously available for operations.

In equipment programme terms we approach the end of a government cycle with a core equipment programme with a 10 year capital value of £152 billion and we have retained £8 billion of unallocated headroom. We have done this for a highly practical reason: if you commit everything you have to a programme that is 10 years away in conceptual terms, you deny yourself any ability to optimise that programme as the force structure comes towards you in time. One of the keys to agility is to be able to make the force structure which you have today the most optimal one you can, so you optimise it as it comes towards you, at the safest and most sensible moment, with the most state-of-the-art capabilities.

But beyond the equipment programme, defence has started to adapt to a profile of use which is far more relevant to the security challenges of the age. We have already taken considerable steps to escape the binary mindset of peace or war; operations or training.

Because the nature of the security context we face is not one which conforms to such a binary mindset. We are increasingly in a state of permanent international competition, competition that can occasionally risk becoming confrontation or even conflict. We need to employ armed forces in such a way that not only do they ameliorate the risk of conflict through protection and deterrence, but they also enhance security through building stability overseas and through capacity building activities which contribute to the prevention of conflict.

The operational reality of this is found in the defence engagement strategy and in defence’s part in pan-government regional strategies: this is why we have committed to an enduring presence in Bahrain; and it is why we are in the lead of reassurance and deterrence activity in eastern Europe.

Such activities are a recognition of the utility of the armed forces in preventing conflict and in contributing to regional stability through reassurance, deterrence and capacity building. Such strategies are also a recognition that it makes no sense to have a £35 billion insurance policy that stays at home playing sport waiting for the next war. It needs to be used: continuously and proportionately. Another example of this is that, as Afghanistan draws down, we have not brought our ISR platforms home to train on them, but rather we have re-deployed them to the next intelligence priority in the fight to contain and degrade ISIL. Because gaining intelligence and better understanding is one of the permanent roles of armed forces, alongside and in support of the national intelligence agencies.

And another significant step we have taken over the past four years is to move beyond the stove pipes of single service rivalry for capability which has typified previous decades. The implementation of the Levene reforms has been fundamental to this. In establishing the Joint Forces Command, for example, we have done far more than simply find a proponent for intelligence, cyber and CIS. We have established the proponent for the new way of warfare. We have started to give intellectual energy to how we must conduct warfare in the information age.

I believe that few people genuinely understand the exponential change that is being brought about by the potential of big data, the internet of things, the advent of super fast connectivity, miniaturisation, autonomy and robotics.

And even fewer people can comprehend the impact it will have on capability; and particularly on capability as we currently, doggedly and determinedly cling to assessing it, through the input metric of ships, planes, tanks and personnel.

And so, as we come to the last few months of this political cycle I refute any characterisation of defence as being institutionally defensive; with reducing relevance; preparing to preside over further retrenchment with a stiff upper lip. We are certainly reduced in size. We are undoubtedly managing specific capability risks. But as of this moment we have preserved our options and, as a testament to our institutional loyalty, retained most of our talent.

And so to part 3: the future.

I want to say 3 things about the future; and by that I mean the imminent future; because I think that the next 12 months will be hugely important in setting ourselves up for success over a much longer period.

The 3 things I want to talk about are, resources, risk and ambition. I am not so blunt as to boldly state that defence needs more resources: though I would remind the next government that the force structure which this government has done so much to preserve was predicted to need real terms growth in defence funding, if it was going to be realised.

But, given the realities of the nation’s fiscal situation, defence’s case for the protection of its anticipated funding has to be immaculate. In this respect I can think of at least half-a-dozen preliminaries we need to get right.

The first, is to be as efficient as possible with the money we have. Defence is hugely improved in this respect, but it is not yet where it needs to be. (We cling to some old and costly habits.)

The second, is to spend the money on the right things. Again, our performance is much improved. Though we still have an expensive habit of over specifying our equipment needs; and believing that defence can invent some military one off, that offers stark advantage over something that is commercially available at a much less cost.

The third preliminary is to buy our capability from wherever we obtain best value. Or, if not, government must recognise those circumstances where the true driver of defence expenditure is to meet wider political or national industrial purposes.

The fourth preliminary, which I won’t labour, is to get the right sort of money: one of the subjects of my talk last year. The need to spend the right amount of money on people, training and infrastructure as well as outstanding capital equipment. And I would add to this the need to spend money on retaining our ability to think.

The fifth, is to have enough money to use the capability you create. Historically the Treasury reserve has funded the net additional costs of military operations and defence has only been funded to train forces to be ready for such operations. In the world of continuous competition, when risks need mitigating early not defeating late, we need to re-look at how defence is funded for operational activity.

The final preliminary is to be yet more adventurous in how we exploit our Alliances. The United Kingdom has a unique set of bilateral and institutional relationships: with the United States and with France; with Nato and European Union; and now with the other members of the United Kingdom’s Joint Expeditionary Force. We need to test the boundaries of sovereign ownership of at least some of our capabilities through mechanisms of pooling and sharing. We are seldom likely to be fighting alone. Everyone sees the need for collective defence.

When we are match fit in all these areas, and that is our determined aim, then our case for money can then more properly be a judgement based on the government’s appetite for risk and its sense of national ambition.

The National security strategy of 2010 and the accompanying strategic defence and security review were the first reviews, I believe, which looked at defence and security holistically, and then took a risk based approach to analysing the threats to the country. This is a hugely important function of government. Probably the most important thing that the National Security Council is asked to do. The world is full of possible threats. Some are remote, but if they happened they would be catastrophic; some are quite likely, but they are nowhere near existential; some you can confront in alliances; some you have to stand alone; some are sponsored by states; some by non-state actors.

Between the threats that really matter, as opposed to the ones which simply have the potential to make unfortunate headlines, lay the potential to mis-spend huge amounts of money. So defence has to know what the government’s appetite for risk truly is; because without that understanding it cannot address the issue of how best to structure, equip and employ itself to meet the security challenges of the age.

And then, my third point, beyond the desire of government to mitigate risks from the narrow perspective of national necessity; the government needs to state whether it believes we have a grander role, a greater ambition, a place beyond the ordinary. A position, as a nation, which speaks to a more global role, a nation which has values as well as interests, and which considers it has a leadership role in the world.

And so the journey to understanding how much money defence needs is not straight forward, is amongst the most critically important judgements of government; cannot be viewed simply through the optic of fiscal consolidation; but must reflect an understanding of national ambition and a nation’s appetite for risk. And must also recognise the significant danger of removing from an institution its own sense of credibility and value. Two things which continue to set our armed forces apart.

To conclude, I hope that my main message is clear. Defence exists to reduce the security risks to the country; and in a world that is growing more dangerous, less stable and more uncertain, defence is going to have to be far smarter at how it contributes to the government’s ability to manage security risks..

To do this successfully we need to move on from viewing our armed forces through the optic of Iraq and Afghanistan; we need to move on from viewing them with a mixture of sympathy and adoration; we need better understanding of their silent utility as the country’s risk managers of last resort.

We need to continue to develop the armed forces, in ways that some people will find uncomfortable, in order to optimise ourselves for the demands of 21st century defence. Preservative instincts are not wholly helpful. The challenge is not to preserve and protect the old ways of doing things; but rather to do new things, better and in the context of finite resources.

I dearly hope that in twelve months time I will be able to report back that we, as a nation, can feel more not less safe. But to be able to do so, the government of the day will have to have made the right choices in balancing resources, risk and ambition. And my biggest challenge, the one that all my fellow chiefs join me in agreeing, lies in our ability to retain the service, the talent, the intellectual edge, and the remarkable character of the people who serve our nation.

So finally, the country needs to recognise that their armed forces are the silent watchmen of a safe and open society. And my last word is to thank those silent watchmen and watchwomen for all they have done this year, will be doing this Christmas and in the year to come.